The following invention relates to financial accounts and, in particular, to a system and method for managing financial account information.
One of the services provided by financial institutions is engaging in transactions with or on behalf of its clients. For example, if a client wants to purchase 100 shares of a particular stock, the financial institution will make the purchase on behalf of the client and charge the client's account the purchase price of the security involved plus a commission fee. The fees earned as a result of performing these transactions represent a significant portion of the financial institution's revenues. Additionally, the information associated with these accounts, when aggregated across the financial institution, becomes a key source for management decisions in the areas of risk management, customer service, marketing and operations processing.
Establishing a successful transactional business requires that the client account information be properly managed. The process of managing client account information typically includes filling out a new account form for each client account opened which requests information such as the client's name, address, legal status, advisors that are authorized to place orders on behalf of the client, the sales person managing the account and the names of any guarantors of transactions executed in that account. In addition, client account information may also include the client's preferences such as settlement instructions, tax withholding information and where to send statements, confirmations and other correspondence. Once the client information is gathered, it is typically entered into a computerized client account management system.
Also, associated with each client account is a list of all the transactions or positions the particular client has engaged in or with through the financial institution. So, for example, if the client purchased 100 shares of XYZ Corp., the details of that transaction, such as the transaction date, instrument type, quantity, price and commission will be stored in a transaction database and associated with the particular client account. In this way, the financial institution can use the client account and transaction information stored in the client account management system to track and manage its transactional business.
A benefit of a client account management system is that it allows the financial institution to assess its exposure with respect to a particular transaction or series of transactions. For instance, if the financial institution learns that one of its clients, Acme Corp., is having liquidity problems, then the client account management system can be queried to identify all the transactions the financial institution engaged with or on behalf of Acme Corp. Based on this information, the financial institution can make a business decision as to (a) whether Acme Corp. has sufficient assets to cover any losses incurred, and (b) whether the trading limit of Acme Corp. should be reduced to limit the risk to the financial institution. Thus, the client account management system plays a key role in helping the financial institution manage the risks associated with each client's transactions.
Another benefit of the client management account system is that it helps the financial institution analyze the profitability of its transactional business and also identify new areas of business opportunity. By tracking all the transactions involving each client, the firm can determine which clients are the most profitable, which transactions are successful and what areas of business should be pursued to increase the financial institution's overall profitability.
Although an effective client account management system is central to operating a profitable transaction business, the prior art client account management systems are unable to provide a financial institution with the reliable, maintainable and easily accessible information it needs to help assess the risk and determine the profitability of its sales and trading businesses. The ineffectiveness of the prior art client account management systems is the result of a number of factors.
First, the prior art systems are generally poor at enforcing and maintaining data integrity. For example, assume Acme Corp. wants to open up three different accounts with a financial institution (Acme Corp. may have numerous accounts with the same financial institution because, for example, it wants to segregate transactions involving different investment instruments into different accounts). In the prior art systems, this generally required that Acme Corp.'s company information be entered into the system three separate times—one time for each new account opened. Because of the multiple data entries, the company information that is actually entered each time may vary slightly due to error or inconsistent punctuation and abbreviations. For instance, one account entry may use the name Acme Corp. while another entry may use Acme Co. A prior art account management system was analyzed and it was found that, due to inconsistent punctuation and abbreviations of the name of a particular client that had over 600 accounts entered into the system, the system maintained over thirty unique spellings for the client's name. If the spelling for each account associated with a particular client is different, the system is unable to determine which accounts are related to a particular client. As a result, the system would be unable to identify all the transactions performed by the particular client through its related accounts, a step that is necessary to assess properly the risk and profitability resulting from each client's transactions.
Another drawback of the prior art client account management systems is the inability of these systems to manage effectively multiple accounts of different but related entities. Often, a client uses several accounts in which to transact business, with each account being associated with a different legal entity related to the client such as, for example, a subsidiary or a parent. Although the name that appears on each account is different, the risk associated with those related accounts may correlate to the creditworthiness of the client family (i.e., ultimate parent). Therefore, for the purposes of risk management, it would be beneficial if all the transactions executed under the different accounts associated with the particular client could be aggregated to determine the total exposure to that client. The prior art systems, however, cannot easily manage the hierarchies of related accounts and relationships among accounts associated with a given client and, as a result, these systems cannot readily identify related transactions for the purpose of risk management.
Another deficiency of the prior art systems is the lack of precision in identifying the roles the various legal entities play in a particular client account. For example, associated with a given account are various legal entities such as the actual principal (or beneficial owner, for e.g., the XYZ Fund), the order placer for the principal (e.g., the XYZ Management Co.), the legal entity of the financial institution that will transact on behalf of the client, the salesperson managing the client account and, if required, the entity acting as a guarantor of the client's transactions. What typically occurs in the prior art systems is that although the data entry person may enter into the client account record the names of these related entities, the system does not automatically tag these entities in a manner that identifies their relationship with the client and the role they play. So, for example, if ABC Corp. is acting as the guarantor of Acme Corp. transactions, ABC Corp.'s name may be entered into the Acme Corp. account record by the data entry person but the system does not necessarily recognize that ABC Corp. is a guarantor of Acme Corp. for risk management purposes. As a result, when a risk analysis of Bob Smith's own transactions are performed, the system won't include in the risk calculation the exposure stemming from ABC Corp.'s guarantee of Acme Corp's transactions.
In summary, because the prior art client account management systems do not manage client account information and account relationships effectively, the client account and transaction information cannot be easily leveraged to help manage the risk and assess the profitability of the financial institution's sales and trading businesses.